Business Law: HMRC could make greater use of Personal Liability Notices, warns Elaine Mann

Elaine Mann of Barker Gotelee Solicitors

Elaine Mann of Barker Gotelee Solicitors - Credit: Archant

Amongst the wide range of duties which a director must discharge, there is a statutory duty to ensure that the company meets its obligations to deduct National Insurance Contributions (NICs) and Pay as You Earn (PAYE) Income Tax from the wages of its employees and to pay those sums over to HM Revenue & Customs (HMRC).

If a director or other similar officer fraudulently or negligently ignores this duty, it is open to HMRC to issue a Personal Liability Notice (PLN) to the director fixing him/her with personal liability and requiring the director to account to HMRC for the unpaid sums plus any interest and penalties.

In order to establish whether the company’s failure to account to HMRC is as a result of fraud or neglect it is necessary to show that the director knew of the requirement that employers must account monthly for PAYE and NIC, and ignored it, or that the director acted recklessly, not caring whether his behaviour was that of a reasonable and prudent officer of the company.

However, a defence of lack of knowledge is very difficult for a director to succeed with, particularly if a company has been making deductions from employees’ wages but not accounting for these to HMRC.

Recent case law has emphasised that the ultimate responsibility for the management of a company sits with its directors. Whilst a company can take on employees and advisers to assist the directors with discharging their duties it is not possible for a director simply to hide behind a financial controller or similar employee and claim lack of knowledge or that responsibility was delegated.

The directors of a company must take responsibility to ensure that they have sufficient knowledge of their business to be able to discharge their duties. This includes putting in place proper financial reporting systems to monitor the company’s cashflow and liquidity and to ensure that it is making the necessary payments to HMRC on time, or they may find themselves exposed to personal liability if such payments are not made.

Whilst not widely used since their introduction in 1992, given the current economic climate, it is not inconceivable that PLNs will become HMRC’s weapon of choice in certain circumstances.

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: : Elaine Mann is a company commercial lawyer at Barker Gotelee Solicitors. For further information on PLNs or any other insolvency or corporate law issues, please contact John Bradshaw or Elaine Mann at Barker Gotelee.